Imagine Owning Inspira Financial (CVE:LND) And Trying To Stomach The 76% Share Price Drop

Investing in stocks inevitably means buying into some companies that perform poorly. But long term Inspira Financial Inc. (CVE:LND) shareholders have had a particularly rough ride in the last three year. Unfortunately, they have held through a 76% decline in the share price in that time. And over the last year the share price fell 25%, so we doubt many shareholders are delighted. Furthermore, it's down 11% in about a quarter. That's not much fun for holders.

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View our latest analysis for Inspira Financial

Inspira Financial hasn't yet reported any revenue yet, so it's as much a business idea as an actual business. You have to wonder why venture capitalists aren't funding it. As a result, we think it's unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. Investors will be hoping that Inspira Financial can make progress and gain better traction for the business, before it runs low on cash.

As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. There is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. So the share price itself impacts the value of the shares (as it determines the cost of capital). While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some Inspira Financial investors have already had a taste of the bitterness stocks like this can leave in the mouth.

When it last reported its balance sheet in November 2018, Inspira Financial had cash in excess of all liabilities of CA$7.5m. While that's nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. With the share price down 38% per year, over 3 years, it seems likely that the need for cash is weighing on investors' minds. You can see in the image below, how Inspira Financial's cash levels have changed over time (click to see the values).

TSXV:LND Historical Debt, May 26th 2019
TSXV:LND Historical Debt, May 26th 2019

It can be extremely risky to invest in a company that doesn't even have revenue. There's no way to know its value easily. What if insiders are ditching the stock hand over fist? I would feel more nervous about the company if that were so. It costs nothing but a moment of your time to see if we are picking up on any insider selling.

A Dividend Lost

The value of past dividends are accounted for in the total shareholder return (TSR), but not in the share price return mentioned above. By accounting for the value of dividends paid, the TSR can be seen as a more complete measure of the value a company brings to its shareholders. Over the last 3 years, Inspira Financial generated a TSR of -69%, which is, of course, better than the share price return. Although the company had to cut dividends, it has paid cash to shareholders in the past.

A Different Perspective

The last twelve months weren't great for Inspira Financial shares, which cost holders 25%, while the market was up about 1.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. However, the loss over the last year isn't as bad as the 32% per annum loss investors have suffered over the last three years. We'd need clear signs of growth in the underlying business before we could muster much enthusiasm for this one. You could get a better understanding of Inspira Financial's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.